ALTRIA GROUP INC
For the period ended Sep 30, 2024. Filed Oct 31, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 31, 2024
MO$76.12-1.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-07-31.
0000764180-24-000093
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-31.
0000764180-24-000102
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 423 previous paragraphs and 436 current paragraphs.
275 unchanged; 124 reworded; 30 added; 17 removed; 7 previous and 7 current paragraphs rearranged.
Tables are not compared: 16 previous and 16 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (30)
Current report
Vision and 2028 Goals
Current report
Optimize & Accelerate Initiative
Current report
On October 30, 2024, our Board of Directors (“Board of Directors” or “Board”) approved a multi-phase Optimize & Accelerate initiative (“Initiative”) designed to modernize our ways of working as we accelerate our progress toward our Vision and 2028 Goals. Through the Initiative, we plan to increase our organization’s speed, efficiency and effectiveness by centralizing work, streamlining and standardizing processes, further using generative artificial intelligence and automation, and outsourcing certain transactional tasks. We expect the design and detailed plans for all phases of the Initiative to be substantially complete in 12 to 18 months.
Current report
As part of the Initiative, we intend to establish an Accelerated Business Solutions organization within Altria Client Services LLC. This organization will be responsible for driving efficiency and process improvement across our companies in partnership with external service providers.
Current report
We expect the initial phases of the Initiative will deliver at least $600 million in cumulative cost savings over the next five years, which we plan to reinvest in our businesses in support of our Vision and 2028 Goals. The cumulative cost savings exclude our estimated total pre-tax charges for these initial phases of approximately $100 million to $125 million (excluding any non-cash impact that may result from pension settlement and curtailment accounting), which we intend to treat as special items and exclude from our adjusted diluted EPS. Substantially all of these charges will result in cash expenditures and will consist of employee separations, new technology, business advisory services and other costs. Although we are still evaluating certain aspects of the initial phases of the Initiative, for which the associated costs are not yet deemed probable and reasonably estimable, we expect to record the majority of the charges related to the initial phases of the Initiative by the end of the first half of 2025, with the initial charges being recorded beginning in the fourth quarter of 2024. As we further develop and finalize detailed plans for the additional phases of the Initiative, we plan to update estimated related costs and cumulative cost savings as such amounts become probable and reasonably estimable.
Current report
E-vapor Reporting Unit: On June 1, 2024, we finalized our purchase price allocation for the acquisition of NJOY Holdings (“NJOY Transaction”), resulting in a carrying value of $1.8 billion for our e-vapor reporting unit’s goodwill. We continue to monitor several factors that could impact the carrying value of our e-vapor reporting unit’s goodwill, including the following:
Current report
▪Altria and certain of our affiliates, including NJOY, are defendants in lawsuits alleging patent infringement based on the sale of NJOY ACE. Remedies being sought by the plaintiffs vary and include an exclusion order that would prohibit the importation of NJOY ACE into the United States, an injunction on sales of NJOY ACE, and damages. We are vigorously defending this litigation and have developed other strategies we believe would allow NJOY ACE to remain on the market or limit sales disruption of NJOY ACE in the event of certain adverse litigation outcomes.
Current report
▪Additionally, sales of illicit flavored disposable e-vapor products continue to increase with limited effective enforcement against these products, contributing to declines in pod-based e-vapor product volume, which has negatively impacted NJOY’s volume growth in 2024.
Current report
If we experience unfavorable outcomes with respect to the patent infringement lawsuits and our related strategies, or if continued illicit e-vapor product sales or other factors result in a significantly different long-term outlook for NJOY’s volume growth rates versus projections used to estimate the fair value at the time we finalized our purchase price allocation for the NJOY acquisition, it could result in a material non-cash impairment of our e-vapor reporting unit’s goodwill in future periods.
Current report
For further discussion of these factors, see Note 14. Contingencies to our condensed consolidated financial statements in Item 1 (“Note 14”) and Operating Results by Business Segment - Business Environment below. For information on the NJOY Transaction, see Note 2. Acquisition of NJOYto our condensed consolidated financial statements in Item 1 (“Note 2”).
Current report
▪NPM Adjustment Items: For a discussion of NPM Adjustment Items and a breakdown of these items by segment, see Health Care Cost Recovery Litigation in Note 14 and NPM Adjustment Itemsin Note 11, respectively.
Current report
We recorded pre-tax expenses of $187 million and $44 million for the nine and three months ended September 30, 2024, respectively, related to the NJOY Transaction. For further information on the costs incurred for the NJOY Transaction, see Note 2.
Current report
We recorded net pre-tax losses of $54 million and $82 million from our investment in ABI for the nine and three months ended September 30, 2023, respectively, consisting primarily of mark-to-market losses on certain ABI financial instruments associated with its share commitments.
Current report
We recorded income tax items of $29 million, for the nine and three months ended September 30, 2023, due primarily to tax expense associated with a tax basis adjustment related to our investment in ABI.
Current report
Operating income increased $63 million (2.0%), due primarily to higher OCI, partially offset by higher general corporate expenses.
Current report
(Income) losses from investments in equity securities, which were favorable $58 million (100%), were positively impacted by lower special items from our investment in ABI.
Current report
Adjusted net earnings of $2,357 million increased $82 million (3.6%), due primarily to higher adjusted OCI. Adjusted diluted EPS of $1.38 increased by 7.8%, due to fewer shares outstanding and higher adjusted net earnings.
Current report
▪illicit trade in tobacco products, including cigarettes, e-vapor products and oral nicotine pouch products;
Current report
Net revenues, which include excise taxes billed to customers, decreased $541 million (3.3%), due primarily to lower shipment volume ($1,991 million), partially offset by higher pricing ($1,444 million), which includes higher promotional investments.
Current report
Reported OCI increased $91 million (1.1%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($131 million), partially offset by lower shipment volume ($1,293 million) and higher per unit settlement charges and manufacturing costs ($206 million).
Current report
Adjusted OCI increased $71 million (0.9%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($125 million), partially offset by lower shipment volume and higher per unit settlement charges and manufacturing costs.
Current report
Net revenues, which include excise taxes billed to customers, decreased $32 million (0.6%), due primarily to lower shipment volume ($556 million), partially offset by higher pricing ($517 million), which includes higher promotional investments.
Current report
Reported OCI increased $194 million (7.1%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($84 million), partially offset by lower shipment volume ($363 million) and higher per unit settlement charges.
Current report
Adjusted OCI increased $194 million (7.1%), due primarily to higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($92 million), partially offset by lower shipment volume and higher per unit settlement charges.
Current report
▪Effective October 6, 2024, Middleton increased various list prices across substantially all of its cigar brands resulting in a weighted-average increase of approximately $0.13 per five-pack.
Current report
Adjusted OCI increased $36 million (2.7%), due primarily to higher pricing, partially offset by lower shipment volume and a higher percentage ofon! shipment volume relative to MST and higher marketing, administration and research costs.
Current report
Net revenues, which include excise taxes billed to customers, increased $37 million (5.4%), due primarily to higher pricing ($51 million), which includes higher promotional investments, partially offset by a higher percentage ofon! shipment volume relative to MST (net of higher shipment volume) ($15 million).
Current report
Nine Months Ended September 30, 2024
Current report
Capital expenditures for 2024 are expected to be in the range of $125 million to $175 million, a reduction from the previous range of $175 million to $225 million, and are expected to be funded from operating cash flows.
Current report
▪our ability to recognize the expected cost savings in connection with the Initiative or successfully reinvest those savings in our businesses in support of our Vision and 2028 Enterprise Goals, in each case, in the expected manner or time frame or at all;
Removed paragraphs (17)
Previous report
Volatility in domestic and global economies and disruptions in the supply and distribution chains have continued in 2024, although these factors have shown some improvement during the year. This volatility and disruption is the result of several factors, including supply and demand imbalances across many commodity sectors, raw materials availability and geopolitical events. We continue to work to mitigate the potential negative impacts of these macroeconomic and geopolitical dynamics on our businesses through, among other actions, proactive engagement with current and potential suppliers and distributors, the development of alternative sourcing strategies, entry into long-term supply contracts and prudent oversight of our liquidity.
Previous report
Also, in connection with the June 2024 issuance by the FDA of MGOs for four NJOY menthol e-vapor products, we recorded a pre-tax charge of approximately $140 million for the six and three months ended June 30, 2024 for the change in the fair value of the contingent payments associated with the acquisition of NJOY Holdings (“NJOY Transaction”). This charge was recorded as general corporate expenses and included in marketing, administration and research costs in our condensed consolidated statement of earnings. For a discussion of the MGOs, see Note 2. Acquisition of NJOYto our condensed consolidated financial statements in Item 1 (“Note 2”).
Previous report
Adjusted net earnings of $2,258 million decreased $88 million (3.8%), due primarily to lower OCI. Adjusted diluted EPS of $1.31 remained unchanged as lower adjusted net earnings were offset by fewer shares outstanding.
Previous report
Marlboro share was 42.0% in the second quarter of 2024, which is unchanged sequentially and a decrease of 0.1 share points versus the second quarter of 2023. Marlboro share in the premium segment of the industry grew to 59.4%, an increase of 0.1 share points sequentially and an increase of 0.7 share points versus the second quarter of 2023.
Previous report
In October 2022, we agreed to assign the exclusive U.S. commercialization rights to the IQOS System to PMI in exchange for a total cash payment of approximately $2.7 billion (plus interest). The assignment became effective in April 2024. The U.S. government asserted that the agreement to assign those rights required district court approval and was subject to PMI becoming bound by a court-ordered injunction against engaging in certain conduct and requiring the communication of corrective statements. In May 2024, we signed an agreement with the U.S. government resolving its concerns regarding our assignment of the exclusive U.S. commercialization rights to the IQOS System to PMI. For further discussion of the agreement with the U.S government, see Note 14.
Previous report
Net revenues, which include excise taxes billed to customers, decreased $509 million (4.7%), due primarily to lower shipment volume ($1,435 million), partially offset by higher pricing ($927 million), which includes higher promotional investments.
Previous report
Reported OCI decreased $103 million (1.9%), due primarily to lower shipment volume ($930 million) and higher per unit settlement charges and manufacturing costs ($155 million), partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($47 million), which include lower tobacco and health and certain other litigation items.
Previous report
Adjusted OCI decreased $123 million (2.3%), due primarily to lower shipment volume and higher per unit settlement charges and manufacturing costs, partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($33 million).
Previous report
Net revenues, which include excise taxes billed to customers, decreased $325 million (5.6%), due primarily to lower shipment volume ($846 million), partially offset by higher pricing ($524 million), which includes higher promotional investments.
Previous report
Reported OCI decreased $39 million (1.4%), due primarily to lower shipment volume ($550 million) and higher per unit settlement charges and manufacturing costs ($50 million), partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($38 million), which include lower tobacco and health and certain other litigation items.
Previous report
Net revenues, which include excise taxes billed to customers, increased $54 million (4.1%), due primarily to higher pricing ($119 million), which includes lower promotional investments, partially offset by lower MST shipment volume and a higher percentage ofon! shipment volume relative to MST (“volume/mix”) ($64 million).
Previous report
Adjusted OCI increased $27 million (3.1%), due primarily to higher pricing, which includes lower promotional investments, partially offset by lower volume/mix and higher costs.
Previous report
Reported OCI decreased $346 million (78.1%), due primarily to a non-cash impairment of the Skoal trademark ($354 million), lower volume/mix ($30 million) and higher costs ($22 million), partially offset by higher pricing, which includes lower promotional investments.
Previous report
Adjusted OCI increased $8 million (1.8%), due primarily to higher pricing, which includes lower promotional investments, partially offset by lower volume/mix and higher costs.
Previous report
In addition:
Previous report
Six Months Ended June 30, 2024
Previous report
(1)On May 6, 2024, Moody’s changed its outlook for our indebtedness to Negative from Stable.
Reworded paragraphs (124)
Previous wording
Our investments in equity securities include Anheuser-Busch InBev SA/NV (“ABI”), the world’s largest brewer, and Cronos Group Inc. (“Cronos”), a leading Canadian cannabinoid company. In March 2024, we sold a portion of our ABI shares (“ABI Transaction”). We used the proceeds from the sale to fund accelerated share repurchase (“ASR”) transactions for our common stock. For further information on the ABI Transaction and the ASR transactions, see Note 6. Investments in Equity Securities to our condensed consolidated financial statements in Item 1 (“Note 6”) and Note 1. Background and Basis of Presentation to our condensed consolidated financial statements in Item 1 (“Note 1”), respectively.
Current wording
Our investments in equity securities include Anheuser-Busch InBev SA/NV (“ABI”), the world’s largest brewer, and Cronos Group Inc. (“Cronos”), a leading Canadian cannabinoid company. In March 2024, we sold a portion of our investment in ABI (“ABI Transaction”). We used the proceeds from the sale to fund accelerated share repurchase (“ASR”) transactions for our common stock. For further information on the ABI Transaction and the ASR transactions, see Note 6. Investments in Equity Securities to our condensed consolidated financial statements in Item 1 (“Note 6”) and Note 1. Background and Basis of Presentation to our condensed consolidated financial statements in Item 1 (“Note 1”), respectively.
Previous wording
In this MD&A section, we discuss factors that have impacted our business as of the date of this Form 10-Q. In addition, we are aware of and address certain trends and developments that could, individually or in the aggregate, have a material impact on our business, including the value of our investments in equity securities, in the future. We focus in this Trends and Developments section on the cumulative effects of inflation, geopolitical events, recent regulatory actions, supply chain disruptions and illegal disposable e-vapor products and their effects or potential effects on our business, including impacts on adult tobacco consumers and their purchasing behaviors.
Current wording
In this MD&A section, we discuss factors that have impacted our business as of the date of this Form 10-Q. In addition, we are aware of and address certain trends and developments that could, individually or in the aggregate, have a material impact on our business, including the value of our investments in equity securities, in the future. We focus in this Trends and Developments section on the discretionary income pressures on adult tobacco consumers, illicit disposable e-vapor products and recent regulatory actions and their effects or potential effects on our business.
Previous wording
We continue to monitor the evolving macroeconomic landscape. The annual rate of inflation remains above the Federal Reserve’s target of 2%, which is a key benchmark for the Federal Reserve in determining the timing and magnitude of changes to the Federal Funds Rate. We continue to observe discretionary income pressures on adult tobacco consumers as a result of the cumulative effects of inflation and other factors. During the first half of 2024, cigarette retail share for the industry discount segment increased year-over-year. We will continue to monitor the effect of these dynamics on adult tobacco consumer purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products. We expect discretionary income pressures will continue to influence adult tobacco consumers’ purchase behaviors in 2024. Inflation also has a direct and adverse impact on our direct and indirect costs.
Current wording
We continue to monitor the discretionary income pressure adult tobacco consumers have experienced during the first three quarters of 2024 as a result of the cumulative impact of inflation. Wage increases have failed to keep up with rising prices, and we have observed increases in debt delinquencies. In September 2024, the annual rate of inflation softened to 2.4%. Although inflation rates remained lower in 2024 than prior years, increased prices continued to pressure adult tobacco consumer discretionary income. These pressures influenced the discount segment retail share growth within the cigarette industry year-over-year. We will continue to monitor conditions that impact adult tobacco consumer discretionary income and overall purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products. We expect discretionary income pressures will continue to influence adult tobacco consumers’ purchase behaviors in the remainder of 2024. Inflation also has a direct and adverse impact on our direct and indirect costs.
Previous wording
Product assortment, regulation and enforcement continue to evolve in the e-vapor category. In June 2024, the FDA issued MGOs to NJOY for four of its menthol e-vapor products. Through the first half of 2024, we estimate the e-vapor category grew by approximately 40%, driven by illicit flavored disposable products, which we believe now represent more than 60% of the e-vapor category as of June 30, 2024. The primary impacts of this trend have been an increase in the rate of cross-category movement among adult cigarette smokers, contributing to higher than expected domestic cigarette industry volume declines as well as declines in pod-based product volume within the e-vapor category. In response to the proliferation of illegal disposable e-vapor products, states and the federal government took various regulatory and enforcement actions in the first half of 2024. Select states have established e-vapor product registries based on pre-market tobacco product application (“PMTA”) submissions or approvals. In June 2024, the federal government created a multi-agency task force in an effort to combat the marketing and sale of illegal e-vapor products in the United States. We have also noted the emergence of products using nicotine analogues designed to imitate the effects of nicotine and evade the FDA regulatory framework for nicotine products. Additionally, we are beginning to see increased illicit activity across multiple tobacco categories, including nicotine pouch products and cigarettes that are available to U.S. consumers.
Current wording
Product assortment, regulation and enforcement continue to evolve in the e-vapor category. In June 2024, the FDA issued MGOs to NJOY for four of its menthol e-vapor products. For the 12 months ended September 30, 2024, we estimate the e-vapor category grew by approximately 30% versus the prior 12-month period, driven by the growth of illicit flavored disposable products. We estimate the disposable segment now represents 65% of the e-vapor category. The primary impacts of this trend have been an increase in the rate of cross-category movement among adult cigarette smokers, contributing to higher than expected domestic cigarette industry volume declines as well as declines in pod-based product volume within the e-vapor category. In response to the proliferation of illicit disposable e-vapor products, states and the federal government took various regulatory and enforcement actions in the first three quarters of 2024. Select states have established e-vapor product registries based on pre-market tobacco product application (“PMTA”) submissions or MGOs. In June 2024, the federal government created a multi-agency task force in an effort to combat the illegal marketing and sale of e-vapor products in the United States. We have also noted the emergence of products using nicotine analogues designed to imitate the effects of nicotine and evade the FDA regulatory framework for tobacco products. Additionally, we continue to see increased illicit activity across multiple tobacco categories, including nicotine pouch products and cigarettes that are available to U.S. consumers.
Previous wording
Tobacco companies are subject to broad and evolving regulatory and legislative frameworks that could have a material impact on our business. For example, the FDA has submitted for final review proposed product standards regarding menthol in cigarettes and characterizing flavors in cigars, which were indefinitely delayed in April 2024. In addition, the Biden Administration published plans for future potential regulatory actions that include the FDA’s plans to develop a proposed product standard that would establish a maximum nicotine level for cigarettes and certain other combustible tobacco products. In California, where a ban on flavored nicotine products went into effect in late 2022, we continue to observe indications of negative unintended consequences of the ban, such as adult tobacco consumer adoption of unregulated products and the development of illicit markets.
Current wording
Tobacco companies are subject to broad and evolving regulatory and legislative frameworks that could have a material impact on our business. For example, the FDA has submitted for final review proposed product standards regarding menthol in cigarettes and characterizing flavors in cigars. The FDA has announced that it would delay a decision on the menthol ban indefinitely, and the date for any final action on either proposal is to be determined. In addition, the Biden Administration published plans for future potential regulatory actions that include the FDA’s plans to develop a proposed product standard that would establish a maximum nicotine level for cigarettes and certain other combustible tobacco products. In California, where a ban on flavored nicotine products went into effect in late 2022, we continue to observe indications of unintended negative consequences of the ban, such as adult tobacco consumer adoption of counterfeit and unregulated products.
Previous wording
ABI’s business is exposed to foreign exchange rate fluctuations, inflation and commodity price movements which may impact financial performance from time to time. We will continue to monitor these conditions and other factors as they could affect our equity earnings, our other comprehensive earnings/losses and the dividends that we receive from ABI, and the fair value of our investment in ABI.
Current wording
ABI’s business is exposed to foreign exchange rate fluctuations, inflation and commodity price movements which may impact financial performance from time to time. We will continue to monitor these conditions and other factors as they could affect our equity earnings, our other comprehensive earnings/losses and the dividends that we receive from ABI, and the fair value of our investment in ABI. See Note 6 for additional information on our investment in ABI.
Previous wording
The trends and developments discussed above have not had a material adverse impact on our condensed consolidated financial statements, but we continue to monitor these trends and developments and potential financial impacts. Additionally, we do not believe that these trends and developments have materially impacted our ability to achieve our Vision. As the trends and developments discussed above evolve and new ones emerge, we will continue to evaluate the potential impacts on our business, investments and Vision.
Current wording
The trends and developments discussed above have not had a material adverse impact on our condensed consolidated financial statements, but we continue to monitor these trends and developments and potential financial impacts. Additionally, we do not believe that these trends and developments have materially impacted our ability to achieve our Vision. As the trends and developments discussed above evolve and new ones emerge, we will continue to evaluate the potential impacts on our businesses, investments and Vision.
Previous wording
Consolidated Results of Operations for the Six Months Ended June 30, 2024
Current wording
Consolidated Results of Operations for the Nine Months Ended September 30, 2024
Previous wording
The changes in net earnings and diluted EPS for the six months ended June 30, 2024, from the six months ended June 30, 2023, were due primarily to the following:
Current wording
The changes in net earnings and diluted EPS for the nine months ended September 30, 2024, from the nine months ended September 30, 2023, were due primarily to the following:
Previous wording
▪Operations: The decrease of $201 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lower OCI.
Current wording
▪Operations: The decrease of $137 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lower OCI.
Previous wording
▪Operations: The decrease of $99 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lower OCI.
Current wording
▪Operations: The increase of $65 million in operations (which excludes the impact of special items shown in the table above) was due primarily to higher OCI.
Previous wording
We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment, and more frequently if an event occurs or circumstances change that would require an interim quantitative impairment assessment.
Current wording
We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment, and more frequently if an event occurs or circumstances change that would require an interim quantitative impairment assessment. There have been no events or changes in circumstances that indicate an interim quantitative impairment assessment was required as of September 30, 2024. We will perform our annual impairment testing during the fourth quarter of 2024.
Previous wording
At December 31, 2023, the estimated fair value of the Skoal trademark exceeded its carrying value of $3.9 billion by approximately 6% ($0.2 billion). Sales volumes of MST products, including Skoal, have continued to be negatively impacted due in part to evolving adult tobacco consumer preferences, which has resulted in consumers increasingly moving across tobacco categories. In connection with the preparation of our financial statements for the period ended June 30, 2024, we evaluated the accelerated growth of innovative tobacco products, including oral nicotine pouches, and the related increase in competitive activity among tobacco categories, which have continued to contribute to reductions in sales volumes for MST products, including Skoal. We concluded that the expected impact from the sales volume declines on the Skoal trademark represented a triggering event, and as a result of this conclusion, we performed an interim impairment assessment. As a result of (i) lower projected revenue and income due to lower volume assumptions, (ii) a decrease in the perpetual growth rate to 0% (1% at October 1, 2023 valuation) and (iii) an increase in the discount rate to 11.5% (11.0% at October 1, 2023 valuation), we determined the estimated fair value of the Skoal trademark was below its carrying value and recorded a non-cash, pre-tax impairment of $354 million for the six and three months ended June 30, 2024 in our condensed consolidated statements of earnings. Our estimate of the fair value and carrying value of the Skoal trademark at June 30, 2024 was $3.6 billion, after recording the impairment.
Current wording
Skoal Impairment: At December 31, 2023, the estimated fair value of the Skoal trademark exceeded its carrying value of $3.9 billion by approximately 6% ($0.2 billion). Sales volumes of MST products, including Skoal, have been negatively impacted due in part to evolving adult tobacco consumer preferences, which has resulted in consumers increasingly moving across tobacco categories. In connection with the preparation of our financial statements for the period ended June 30, 2024, we evaluated the accelerated growth of innovative tobacco products, including oral nicotine pouches, and the related increase in competitive activity among tobacco categories, which have contributed to reductions in sales volumes for MST products, including Skoal. We concluded that the expected impact from the sales volume declines on the Skoal trademark represented a triggering event, and as a result of this conclusion, we performed an interim impairment assessment as of June 30, 2024. As a result of (i) lower projected revenue and income due to lower volume assumptions, (ii) a decrease in the perpetual growth rate to 0% (1% at October 1, 2023 valuation) and (iii) an increase in the discount rate to 11.5% (11.0% at October 1, 2023 valuation), we determined the estimated fair value of the Skoal trademark was below its carrying value and recorded a non-cash, pre-tax impairment of $354 million during the second quarter of 2024 in our condensed consolidated statements of earnings. Our estimate of the fair value and carrying value of the Skoal trademark at June 30, 2024 was $3.6 billion, after recording the impairment.
Previous wording
While our management believes that the estimated fair value of the Skoal trademark at June 30, 2024 is reasonable, if Skoal’s actual revenue and income or long-term outlook are significantly different from forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have an additional non-cash impairment, which could be material, to the Skoal trademark in future periods.
Current wording
Our management believes that the estimated fair value of the Skoal trademark at June 30, 2024 was reasonable and no events or circumstances exist indicating an impairment at September 30, 2024. If Skoal’s actual revenue and income or long-term outlook are significantly different from forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have an additional non-cash impairment, which could be material, to the Skoal trademark in future periods.
Previous wording
The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the six months ended June 30:
Current wording
The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the nine months ended September 30:
Previous wording
The following special items affected the comparability of statements of earnings amounts for the six and three months ended June 30, 2024 and 2023:
Current wording
The following special items affected the comparability of statements of earnings amounts for the nine and three months ended September 30, 2024 and 2023:
Previous wording
▪Acquisition and disposition-related items: We recorded a pre-tax gain of $2.7 billion upon the assignment of the IQOS Tobacco Heating System (“IQOS System”) commercialization rights to Philip Morris International Inc. (“PMI”) in April 2024, for the six and three months ended June 30, 2024. For a discussion of the sale of the IQOS System commercialization rights, see Note 5.
Current wording
▪Acquisition, disposition and integration-related items: We recorded a pre-tax gain of $2.7 billion upon the assignment of the IQOS Tobacco Heating System (“IQOS System”) commercialization rights to Philip Morris International Inc. (“PMI”) in April 2024, for the nine months ended September 30, 2024. For a discussion of the sale of the IQOS System commercialization rights, see Note 5.
Previous wording
▪Asset Impairment: We recorded a non-cash, pre-tax impairment of the Skoal trademark of $354 million for the six and three months ended June 30, 2024 in our oral tobacco products segment. For further discussion, see Note 5.
Current wording
▪Asset Impairment: We recorded a non-cash, pre-tax impairment of the Skoal trademark of $354 million for the nine months ended September 30, 2024 in our oral tobacco products segment. For further discussion, see Note 5.
Previous wording
▪Tobacco and Health and Certain Other Litigation Items: For a discussion of tobacco and health and certain other litigation items and a breakdown of these costs by segment, see Note 14. Contingencies to our condensed consolidated financial statements in Item 1 (“Note 14”) and Tobacco and Health and Certain Other Litigation Items in Note 11, respectively.
Current wording
▪Tobacco and Health and Certain Other Litigation Items: For a discussion of tobacco and health and certain other litigation items and a breakdown of these costs by segment, see Note 14, and Tobacco and Health and Certain Other Litigation Items in Note 11, respectively.
Previous wording
▪Loss on Disposition of JUUL Equity Securities: We recorded a non-cash, pre-tax loss of $250 million related to the disposition of our JUUL equity securities for the six months ended June 30, 2023 as (income) losses from investments in equity securities in our condensed consolidated statement of earnings. We recorded a corresponding adjustment to the JUUL tax valuation allowance in 2023.
Current wording
▪Loss on Disposition of JUUL Equity Securities: We recorded a non-cash, pre-tax loss of $250 million related to the disposition of our JUUL equity securities for the nine months ended September 30, 2023 as (income) losses from investments in equity securities in our condensed consolidated statement of earnings. We recorded a corresponding adjustment to the JUUL tax valuation allowance in 2023.
Previous wording
▪ABI-Related Special Items: We recorded net pre-tax income of $62 million from our investment in ABI for the six months ended June 30, 2024, which consists primarily of a gain related to the ABI Transaction. For further information on the gain related to the ABI Transaction, see Note 6.
Current wording
▪ABI-Related Special Items: We recorded net pre-tax income of $39 million from our investment in ABI for the nine months ended September 30, 2024, which consists primarily of a gain related to the ABI Transaction, partially offset by mark-to-market losses on certain ABI financial instruments associated with its share commitments. For further information on the gain related to the ABI Transaction, see Note 6.
Previous wording
▪Cronos-Related Special Items: We recorded pre-tax losses of $30 million, substantially all of which related to our share of special items recorded by Cronos for the six months ended June 30, 2023. We recorded a corresponding adjustment to the Cronos tax valuation allowance.
Current wording
▪Cronos-Related Special Items: We recorded pre-tax losses of $30 million, substantially all of which related to our share of special items recorded by Cronos for the nine months ended September 30, 2023. We recorded a corresponding adjustment to the Cronos tax valuation allowance.
Previous wording
▪Income Tax Items: We recorded income tax items of $52 million for the six months ended June 30, 2024, due primarily to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses, partially offset by interest expense on tax reserves recorded in prior years. The valuation allowance release was due to our capital gain on the ABI Transaction. For further discussion, see Note 13. Income Taxes to our condensed consolidated financial statements in Item 1 (“Note 13”).
Current wording
▪Income Tax Items: We recorded income tax items of $41 million for the nine months ended September 30, 2024, due primarily to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses, partially offset by interest expense on tax reserves recorded in prior years. The valuation allowance release was due to our capital gain on the ABI Transaction. For further discussion, see Note 13. Income Taxes to our condensed consolidated financial statements in Item 1.
Previous wording
Net revenues, which include excise taxes billed to customers, decreased $299 million (4.6%), due primarily to lower net revenues in our smokeable products segment, partially offset by higher net revenues in our oral tobacco products segment.
Current wording
Net revenues, which include excise taxes billed to customers, decreased $464 million (2.5%), due primarily to lower net revenues in our smokeable products segment, partially offset by higher net revenues in our oral tobacco products segment.
Previous wording
Cost of sales decreased $76 million (2.4%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges and higher manufacturing costs in our smokeable products segment and higher NJOY shipment volume.
Current wording
Cost of sales decreased $118 million (2.5%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges and higher manufacturing costs in our smokeable products segment and higher NJOY shipment volume.
Previous wording
Excise taxes on products decreased $235 million (11.6%), due to lower shipment volume in our smokeable products segment.
Current wording
Excise taxes on products decreased $324 million (10.7%), due to lower shipment volume in our smokeable products segment.
Previous wording
Marketing, administration and research costs decreased $30 million (2.1%), due primarily to lower general corporate expenses, partially offset by inflation impacts and higher investment spending in support of our Vision (including 2024 NJOY costs). The lower general corporate expenses were due primarily to lower charges to resolve certain JUUL-related litigation and the 2023 settlement of the shareholder derivative lawsuits, partially offset by higher acquisition-related costs primarily associated with the NJOY Transaction and transaction costs from the ABI Transaction. See Note 14 for a discussion of litigation items.
Current wording
Marketing, administration and research costs increased $16 million (0.8%), due primarily to higher investment spending in support of our Vision (including 2024 NJOY costs), partially offset by lower general corporate expenses. The lower general corporate expenses were due primarily to lower charges to resolve certain JUUL-related litigation and the 2023 settlement of the shareholder derivative lawsuits, partially offset by higher acquisition-related costs primarily associated with the NJOY Transaction and transaction costs from the ABI Transaction. See Note 14 for a discussion of litigation items.
Previous wording
Operating income decreased $455 million (8.0%), due primarily to lower OCI (which includes a non-cash impairment of the Skoal trademark in our oral tobacco product segment), partially offset by lower general corporate expenses.
Current wording
Operating income decreased $392 million (4.5%), due primarily to lower OCI (which includes a non-cash impairment of the Skoal trademark in our oral tobacco product segment), partially offset by lower general corporate expenses.
Previous wording
Interest and other debt expense, net increased $29 million (6.0%), due primarily to 2023 interest income associated with the sale of the IQOS System commercialization rights, partially offset by 2023 interest expense and fees for the term loan facility associated with the NJOY Transaction. For further discussion regarding the sale of the IQOS System commercialization rights, see Note 5.
Current wording
Interest and other debt expense, net increased $24 million (3.2%), due primarily to 2023 interest income associated with the sale of the IQOS System commercialization rights, partially offset by 2023 interest expense and fees for the term loan facility associated with the NJOY Transaction. For further discussion regarding the sale of the IQOS System commercialization rights, see Note 5.
Previous wording
(Income) losses from investments in equity securities, which were favorable $367 million (100.0+%), were positively impacted by the 2023 loss on the disposition of our JUUL equity securities and favorable results from our investment in ABI (due primarily to our gain on the ABI Transaction.)
Current wording
(Income) losses from investments in equity securities, which were favorable $425 million (100+%), were positively impacted by the 2023 loss on the disposition of our JUUL equity securities and favorable results from our investment in ABI (due primarily to our gain on the ABI Transaction.)
Previous wording
Provision for income taxes increased $542 million (39.2%), due primarily to higher earnings before income taxes, partially offset by favorable tax items as discussed above.
Current wording
Provision for income taxes increased $533 million (25.1%), due primarily to higher earnings before income taxes, partially offset by favorable tax items as discussed above.
Previous wording
Reported net earnings of $5,932 million increased $2,028 million (51.9%), due primarily to the gain on the sale of the IQOS System commercialization rights, favorable results from our investments in equity securities and favorable income tax items, partially offset by lower operating income. Reported basic and diluted EPS of $3.41, each increased by 56.4% due to higher reported net earnings and fewer shares outstanding.
Current wording
Reported net earnings of $8,225 million increased $2,155 million (35.5%), due primarily to the gain on the sale of the IQOS System commercialization rights, favorable results from our investments in equity securities and favorable income tax items, partially offset by lower operating income. Reported basic and diluted EPS of $4.75, each increased by 39.7% due to higher reported net earnings and fewer shares outstanding.
Previous wording
Adjusted net earnings of $4,280 million decreased $184 million (4.1%), due primarily to lower OCI. Adjusted diluted EPS of $2.46 decreased by 1.6%, due to lower adjusted net earnings, partially offset by fewer shares outstanding.
Current wording
Adjusted net earnings of $6,637 million decreased $102 million (1.5%), due primarily to lower adjusted OCI. Adjusted diluted EPS of $3.84 increased by 1.6%, due to fewer shares outstanding, partially offset by lower adjusted net earnings.
Previous wording
Net revenues, which include excise taxes billed to customers, decreased $442 million (3.6%), due to lower net revenues in our smokeable products segment, partially offset by higher net revenues in our oral tobacco products segment and our all other category.
Current wording
Net revenues, which include excise taxes billed to customers, decreased $22 million (0.4%), due to lower net revenues in our smokeable products segment and in our all other category, partially offset by higher net revenues in our oral tobacco products segment.
Previous wording
Cost of sales decreased $79 million (4.7%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges and higher manufacturing costs in our smokeable products segment and higher NJOY shipment volume.
Current wording
Cost of sales decreased $42 million (2.7%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges in our smokeable products segment and higher NJOY shipment volume.
Previous wording
Excise taxes on products decreased $138 million (12.9%), due to lower shipment volume in our smokeable products segment.
Current wording
Excise taxes on products decreased $89 million (8.9%), due to lower shipment volume in our smokeable products segment.
Previous wording
Marketing, administration and research costs decreased $64 million (7.5%), due primarily to lower general corporate expenses, partially offset by inflation impacts and higher investment spending in support of our Vision (including 2024 NJOY costs). The lower general corporate expenses include lower charges to resolve certain JUUL-related litigation, partially offset by higher acquisition-related costs primarily associated with the NJOY Transaction.
Current wording
Marketing, administration and research costs increased $46 million (7.5%), due primarily to higher general corporate expenses and higher investment spending in support of our Vision. The higher general corporate expenses were due primarily to higher acquisition-related costs associated with the NJOY Transaction.
Previous wording
Reported net earnings of $3,803 million increased $1,686 million (79.6%), due primarily to the gain on the sale of the IQOS System commercialization rights, partially offset by lower operating income. Reported basic and diluted EPS of $2.21, each increased by 85.7% due to higher reported net earnings and fewer shares outstanding.
Current wording
Reported net earnings of $2,293 million increased $127 million (5.9%), due primarily to higher operating income and favorable results from our investments in equity securities. Reported basic and diluted EPS of $1.34, each increased by 9.8% due to higher reported net earnings and fewer shares outstanding.
Previous wording
The U.S. tobacco industry faces a number of business and legal challenges that have materially adversely affected and may continue to materially adversely affect our business, results of operations, cash flows or financial position or our ability to achieve our Vision. These challenges, some of which are discussed in more detail in Note 14, and in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”), include:
Current wording
The U.S. tobacco industry faces a number of business and legal challenges that have materially adversely affected and may continue to materially adversely affect our business, results of operations, cash flows or financial position or our ability to achieve our Vision. These challenges, some of which are discussed in more detail in Note 14, and in Part I, Item 1A. Risk Factors of our 2023 Form 10-K, include:
Previous wording
▪the FDA’s failure to effectively address illegal e-vapor products on the market;
Current wording
▪the FDA’s failure to effectively address illicit tobacco products on the market, including illicit e-vapor and oral nicotine pouch products;
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Current report — wording carried from elsewhere
We continue to monitor changing conditions within our business environment and impacts on our businesses. Changes in these and other conditions could have a material adverse effect on our business, results of operations, cash flows or financial position.
Current report — wording carried from elsewhere
Exemption pathways. Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products.
Current report — wording carried from elsewhere
and Rhode Island (effective in September 2024)) have increased excise taxes in 2024. In addition, various increases are under consideration or have been proposed.
Current report — wording carried from elsewhere
▪Effective October 20, 2024, PM USA increased the list price of Marlboro(excluding Mainline Menthol and 72s Menthol), L&Mand Basic by $0.17 per pack. PM USA also increased the list price of all its other cigarette brands by $0.22 per pack.
Current report — wording carried from elsewhere
▪Effective August 25, 2024, Helix increased the list price on itson! brand by $0.10 per can.
Current report — wording carried from elsewhere
In August 2024, our Board of Directors approved a 4.1% increase in the quarterly dividend rate to $1.02 per share of our common stock versus the previous rate of $0.98 per share. Our current annualized dividend rate is $4.08 per share. We have a progressive dividend goal targeting mid-single digits dividend growth annually through 2028. Future dividend payments remain subject to the discretion of our Board.
Current report — wording carried from elsewhere
Guarantor Subsidiaries”) are limited by contractual obligations on their ability to pay cash dividends or make other distributions with respect to their equity interests.
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Previous report — wording carried elsewhere
See Note 6 for additional information on our investments in equity securities.
Previous report — wording carried elsewhere
Apart from the factors leading us to perform a quantitative assessment for the Skoal intangible asset as discussed below, there have been no events or changes in circumstances that indicate an interim quantitative impairment assessment was required as of June 30, 2024. We will perform our annual impairment testing during the fourth quarter of 2024.
Previous report — wording carried elsewhere
Operating income decreased $372 million (12.8%), due primarily to lower OCI (which includes a non-cash impairment of the Skoal trademark in our oral tobacco product segment), partially offset by lower general corporate expenses.
Previous report — wording carried elsewhere
Provision for income taxes increased $624 million (90.6%), due primarily to higher earnings before income taxes.
Previous report — wording carried elsewhere
▪illicit trade in tobacco products, including illicit e-vapor and oral nicotine pouch products; and
Previous report — wording carried elsewhere
Current macroeconomic conditions and geopolitical instability (including inflation, high interest rates, labor shortages, supply and demand imbalances and geopolitical instability and international armed conflict) have caused and continue to cause worldwide disruptions and delays to supply chains and commercial markets, which limit access to, and increase the cost of, raw materials, ingredients and component parts (for example, tobacco leaf and resins and aluminum used in our packaging). We have implemented and continue to implement various strategies to help secure sufficient supplies of raw materials, ingredients and component parts for production.
Previous report — wording carried elsewhere
For a discussion regarding discount category dynamics in 2024 and the economic conditions, including a high inflationary environment, that impact adult tobacco consumer purchasing behavior, see Operating Results by Business Segment - Business Environment - Summary above.